Fidelity Adds New Client - Analyst Blog

By Zacks | December 14, 2012 AAA

Fidelity National Information Services Inc. (FIS) will provide its financial solutions to VW Credit Inc., the auto finance segment of Volkswagen Group of America, to improve its loan and leasing processing business in North America. VW Credit will leverage Fidelity's AutoSuite, Default Manager and Touchpoint solutions for efficiently running business processes in a cost-effective manner.  Moreover, Fidelity's solutions will enable VW Credit to synchronize and integrate the loan lease receivables, customer service, collections and customer relationship management facility.

We believe that Fidelity's new customer wins and customer retention success are the keys to the company's future prospects. These agreements are likely to increase the company's market share in future.

Fidelity provides banking and payment technology solutions and has a strong clientele of financial institutions globally. We believe that Fidelity's commanding position in the financial services market, its increasing international exposure, recurring revenue model, diversified product portfolio, cost synergies from acquisitions and loyal and increasing customer base will drive growth.

This is evident from Fidelity's results in the first nine months of fiscal 2012. During this period, revenue from the Financial Solutions segment was up 8.1% year over year, while the Payment Solutions segment recorded marginal revenue growth of 1%. As a result, total consolidated revenue increased 3.4%.

Separately, we believe that Fidelity is well positioned to benefit from increasing investments in emerging technologies such as mobile banking. Mobile banking is developing as an extension of online banking, as mobile usage continues to accelerate globally.

However, increasing consolidation in the banking sector, a challenging environment for the Payment Solutions business and an uncertain regulatory environment are the primary headwinds in our view.

We maintain our Neutral recommendation on a long-term basis (for the next 6 to 12 months), primarily due to a highly-leveraged balance sheet and intense competition from other major players such as Fiserv Inc. (FISV).

Currently, Fidelity has a Zacks #2 Rank (Buy).

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